Price may drop at 2nd auction of Philly newspapers

View full sizeAssociated Press archiveDave Sexton sells newspapers outside the Philadelphia Inquirer and Philadelphia Daily News building in April. Philadelphia's two major newspapers may soon go up for auction again after creditors failed to close on their $139 million purchase by a Sept. 14 deadline.

The bank and hedge fund creditors who won the April auction vow to prevail again. But they say the sale price may drop by half, given changing economics of the deal.

Rules of the spring auction included an escape clause if the winner couldn't negotiate labor agreements with all 15 unions at the company. That's exactly what happened this week when delivery drivers concerned about changes to their Teamsters pension held out. Their stance sank the creditors' long-expected takeover of the company.

This time, Philadelphia Newspapers Inc. is being sold "as is," with no strings attached.

"My secured lenders are saying to me, 'The economics have changed. This is not the same situation,'" lawyer Fred Hodara told Chief U.S. Bankruptcy Judge Stephen Raslavich.

In exchange, Hodara sought to undo a plan for unsecured creditors, company executives and others to share a pot of few million dollars from the sale. Raslavich, intent on ending the 18-month bankruptcy without further delay, grew incensed.

"If you try and squeeze every nickel in this case -- at this late date -- into a dime, it's going to backfire. Be advised: Don't overplay your hand," he warned.

Local investors and philanthropists led by business mogul Raymond Perelman and his son, Revlon Chairman Ronald Perelman, bid at the first auction, helping push the price past $100 million.

The elder Perelman has not committed to a bid this time, but recently toured the newsroom and was in court Tuesday when creditors pulled out of the first sale. His lawyer told reporters afterward that he remains interested in the company.

Local investors led by public relations executive Brian Tierney and luxury homebuilder Bruce Toll bought the newspaper company for $515 million in 2006. They filed for bankruptcy three years later amid nationwide industry declines.